Tulsian's multibaggers: IVRCL tops list as surprises follow

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Tulsian's multibaggers: IVRCL tops list as surprises follow

In an exclusive interview with CNBC-TV18, SP Tulisan of sptulsian.com cherry picks multibaggers for the trade on Thursday. He chooses Kemrock Industries owing to the company’s “excellent growth potentials in the next 3-5 year scenario.” Also, he likes Numeric Power, a thinly traded stock with a view of “about 6-12 months time.”

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ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets Kemrock Indus BSE | NSE 29/05/12 Are Mutual Funds betting on Kemrock Indus? Other Stocks in this news Numeric Power Systems | Hindustan Dorr-Oliver | IVRCL |

In an exclusive interview with CNBC-TV18, SP Tulisan of sptulsian.com cherry picks multibaggers for the trade on Thursday.  He chooses Kemrock Industries owing to the company's "excellent growth potentials in the next 3-5 year scenario." Also, he likes Numeric Power , a thinly traded stock with a view of "about 6-12 months time." He says the stock can give a return of close to about 50%.

His top pick, however, remains IVRCL , as he sees no concern from the standalone balance sheet. "Any debt repayment initiative by the management can put back this company on the track. The company has order book of about Rs 20,000 crore. Taking all into consideration, the downside is very limited," he says. In maybe 6 months, he expects the stock to breach 3-digit mark.

Below is a transcript of SP Tulisan interview with CNBC-TV18. Also watch the accompanying video.

Q: Why do you like Kemrock Industries?

A: It is an integrated global leader making fibre reinforced composite products and has  wide applications in aero space, wind energy, road, waste water treatment, oil and gas, railways, defence and all the sectors that are critical in respect to quality control. It is an import substitute of very high tech products and fetches good margin for the company.

In the 9 months performance that ended on 31 March, 2011, the company has posted a rise of 72% in its top line which moved to Rs 600 crore plus and the PAT has improved by 62% in the corresponding period of the previous year.

The RPM International Inc acquired about 20% stake in the company and they are coming out with an open offer at Rs 539 per share for 22% equity of the company. If you see the present shareholding pattern of the company, about 48% are held by the depository holder and 20% by RPM International. If I presume that open offer will go through successfully because of the public holding of about 28% and even if they are able to mobilize and garner about 12% to 15% stake, they will all be ending up with an effective stake of about 64% to 65%.

The share is ruling at a PE multiple of 12, the price book too is quite attractive at 1.4 times. Generally, these products and these types of products fetch high valuation, therefore, taking that this into consideration over a period of time this is becoming a multinational company likely to get acquired, maybe in 28% held by the Indian promoter may get sold.

The core business of the company has excellent growth potentials in the next 3-5 year scenario. The share should be able to reach Rs 600 maybe in the next couple of months but if somebody can keep a view of 6-8 months, the share can easily move to Rs 750 levels.

Q: What do you like about Numeric Power?

A: It is a thinly traded stock; the only negative in the stock is having a daily average turnover of about 1000 shares per day. However, if you go by the financials of the company they are the largest Uninterruptible Power Supplies (UPS) makers. For financial year ended March'11 they have posted a top-line of close to about Rs 500 crore and because of lower equity of close to Rs 10 crore they have posted a PAT of Rs 41 crore which translated into an EPS of Rs 41.
 
The company has been consistently posting good financial performance maybe with a growth of about 10%. The share is now ruling at Rs 222-223 while the book value is at about Rs 270, if I add the earnings it is likely to translate into an EPS of close to Rs 45 for FY12, it is ruling at a PE multiple of 5 and price to book of about 0.75. It is a stock for the long-term kind of investments; one cannot really expect the share to show any significant up move in the near-term of a month or couple of months. However, if somebody can keep a view of about 6-12 months time, it can give a return of close to about 50%.

Q: Why IVRCL is one of your picks today?

A: The FY11 results of IVRCL on a standalone basis see a dip in the PAT margin to about 3%. However, except for that there is no concern because they have a top-line of Rs 5,600 crore. The balance sheet is in place, the networth is of Rs 2000 crore, debt of Rs 2000 crore, fix assets of Rs 2000 crore, debt equity ration of 1:1 and EPS of Rs 6. However, on a consolidated basis IVRCL Assets and Holding is the company which is causing a big problem, this 80% subsidiary had a top-line of Rs 900 crore for FY11 on a standalone basis while they posted a loss of Rs 155 crore, largely from interest liability of Rs 170 crore.

The company has indicated in the past, IVRCL Limited is holding 80% in IVRCL assets and 55% in Hindustan Dorr Oliver . The management in the past had indicated they want to sell their 55% stake in Hindustan Dorr Oliver, the marketcap of the 55% stake is about Rs 250 crore and if they sell this stake they should be able to easily fetch about Rs 500-600 crore.

It is a matter of time and once the debt liquidation or the debt repayment starts everything can come in place. Even the IVRCL assets are sitting on a huge kind of assets which they have acquired in PP or BoT projects like Chennai Desalination plants. Therefore, they will take steps to liquidate debts which are on a consolidated basis to the extent of about Rs 4200-4300 crore.

The standalone balance sheet is of no concern. Any debt repayment initiative by the management can put back this company on the track. The company has order book of about Rs 20,000 crore. Taking all into consideration, the downside is very limited. In maybe 6 months one can expect the share to breach 3-digit mark.